Farewell points to ponder
After 6mos of blogging I have decided to go back into the professional (read compensated) workforce to once again engage in the world of FX/Fixed Income/Commodities sales and structuring covering the macro minded users of the product space.
While my time out of the market was painful on many levels, I found solace in writing this blog and I appreciate all of people who read it and commented.
Unfortunately my new employer is not terribly comfortable with my using mirroring my comments on this particular blog. So going forward there maybe a post or two on these pages but if you would like to receive more frequent postings please reach out via my email and I will work with you to arrange something.
themacromindseye@gmail.com
Before I sign out I did feel that it was important to recognize that today will be a milestone in the crisis and that it was important to share some thoughts with you.Along those lines here are 5 things that I'm thinking as we go into the Greek election outcomes.
1- Is this the point of reflection for the EU crisis or just another inflection point? How many times in the EU crisis have we thought that we've hit the inflection point only to find that politicians and the central bank have the ability to kick the can down the road just a little further? What kind of moment is this?
2-When the sitting Greek PM, whose father was PM and whose grandfather was PM suggests that Greece needs a referendum on the bailout etc. in Nov 2011 Merkel and the rest of the EU political class basically forced him out of office. Funny thing is here we are about 6mos later and all I can think is that he was right???
3- If Syriza and their outspoken candidate Tsipras do pull it out this afternoon, is that the end of Greece? Politicians promise a lot on the campaign trail could we see the far left back down once in office (see Obama's pledge on gitmo for instance)? Or do they just not have enough time for that ??
4-Could Merkel and the EU leadership back down on a Syriza victory? Remember that in this game of chicken Greece holds a lot more of the cards than you would think on the surface. That is because most of the bailout funds do not go to the Greek government but rather to the Troika and the banking system.
5- If I were a policy wonk sitting in Brussels right now and I saw what happened to Spanish/peripheral spreads this week after I just gave Spain 100bn EURs last weekend I'd have one question on my mind.....What could I do to stop the hemorrhaging if the Greek public does decide on Syrizia??? (I should add that it is thoughts like these that make me happy I'm not a policy wonk sitting in Brussels right now)
and your bonus point to ponder
With the stakes as high as they are today its worth remembering that voter turnout in Greece is expected to be under 10mln. Think about how many of the over 300mln lives within the EMU will be affected by this vote. Not to mention how the +400mln people living in the EU as a whole will be impacted (even though the UK isn't part of the EUR Mervyn King and Co were very busy girding their system/markets this week). I mean consider this, 130 million people voted in the last American idol......that's a scary thought!!!!!
Sunday, June 17, 2012
Sunday, June 10, 2012
On Spain's bank bailout
While full details are still unknown about the Spanish bailout the FT does a good job of summarizing some of the terms. From it a few things strike me here is a list........
1-Come big or don't come at all - The proposed agreement is for a EUR100bn facility. This is toward the high end of Fitch's most conservative estimate, released the other day along with the Spanish Sovereign downgrade. The IMF put Spain's bank recap need at about EUR 37bn. To me this amount is about sending a message to the markets. Even though there is uncertainty about the full extent of the problem, the fact is that with 100bn of official equity supporting the Spanish banks as well as the ECB’s funding programs ( LTROS etc) there is plenty of capital for the banks (which as they recapitalize will ultimately find their way back into the Spanish government bond market as well).
2-Spain's not paying a huge price – Spain, unlike Greece, Portugal and Ireland does not seem to be getting asked to do much for this loan. Whether you want to rack this up to the size and negotiating power that Spain has or to the new growth minded post French election EU the fact is that this loan comes with no harsher austerity than what the government already agreed to, along with the rest of the EU, last year.
3-The end of the Troika? – As far as I can tell this bailout will not involve the IMF and ECB in the Troika structure but is unilateral from the EU. I do not know why this is exactly. I suspect that it has to do with the IMF and ECB not wanting in on a bank bailout (technically the IMF can't get involved in bank lending and the ECB is full up Spanish sovereign and bank credit via SMP and LTRO). But it could als be a function of the EU not appreciating the IMF’s involvement or the ECB’s comments on Greece throughout the past few months. Whatever the reason this partnership does seem to have dissolved in this bailout.
4-Via the sovereign - A subtle but important point about this agreement is that the money is going through the Spanish government to a bank bailout fund rather than to the Spanish banks directly. On the one hand this may offer Spain flexibility to use funds to bailout their local governments who are in dire need of funding as well (we will have to see the terms to get a sense for how much freedom they have on fund usage). But bear in mind that this structure actually levers up the sovereign's balance sheet at a time when many have questioned the country's ability to service its debt load. Also worth considering is that the government is taking EU funds in debt form and using the money to buy bank equity. In other words the best the EU can hope for is their money back with interest where the Spanish government gets equity upside and embedded leverage from the EU. Most bail outs tend to be profitable operations. The government is a long term stakeholder with little concern for mark to market. In most cases the state gets in below market and at the best time (when everyone else is heading for the exits). So the Spanish government is set up to turn a profit on borrowed funds with the EU taking risk and not really getting compensated. My guess is that the EU chose to go this structure because they were not ready to integrate further and they figured that Spain's government is best positioned to administer and monitor the loans (after all Spain is still the only real regulator of the Spanish banks - another argument for setting up an EU-wide bank regulator). But I see this as a missed opportunity. The EU should have set up a fund and invested the money directly. It would have kept Spain's sovereign credit out of the equation and if Spain were to default the EU would be at less risk.
5- ESM vs EFSF - One point that is yet to be made clear is whether the funds are coming from EFSF or ESM. This is important because ESM funds supersede all other forms of debt where EFSF funding is pari-pasu with outstanding debt. Because this loan is being done at the Spanish sovereign level if the funds come from ESM all of the current outstanding Spanish government bond holders would be subordinated to the ESM. This could create further pain on government bond spreads.
And your bonus point
If the powers that be in Europe had the whole weekend to put this deal together how come the announcement came on a Saturday? One would have thought that a deal of this scale would have been carefully bargained and considered using as much time as possible. How was it done so quickly? I gues one answer is that the plan had clearly been in the works for a while. Plus Spain is getting a sweetheart deal (all the funding with no further spending commitments is a no brainer). But I wonder if the fact that the opening game for Spain's national team in the European Football Championship didn't play a part in the swiftness of the deal. My guess is that Rajoy and his staff (not to mention Monti and the Italians ) wanted the whole thing over and done with so that they could enjoy the match.
1-Come big or don't come at all - The proposed agreement is for a EUR100bn facility. This is toward the high end of Fitch's most conservative estimate, released the other day along with the Spanish Sovereign downgrade. The IMF put Spain's bank recap need at about EUR 37bn. To me this amount is about sending a message to the markets. Even though there is uncertainty about the full extent of the problem, the fact is that with 100bn of official equity supporting the Spanish banks as well as the ECB’s funding programs ( LTROS etc) there is plenty of capital for the banks (which as they recapitalize will ultimately find their way back into the Spanish government bond market as well).
2-Spain's not paying a huge price – Spain, unlike Greece, Portugal and Ireland does not seem to be getting asked to do much for this loan. Whether you want to rack this up to the size and negotiating power that Spain has or to the new growth minded post French election EU the fact is that this loan comes with no harsher austerity than what the government already agreed to, along with the rest of the EU, last year.
3-The end of the Troika? – As far as I can tell this bailout will not involve the IMF and ECB in the Troika structure but is unilateral from the EU. I do not know why this is exactly. I suspect that it has to do with the IMF and ECB not wanting in on a bank bailout (technically the IMF can't get involved in bank lending and the ECB is full up Spanish sovereign and bank credit via SMP and LTRO). But it could als be a function of the EU not appreciating the IMF’s involvement or the ECB’s comments on Greece throughout the past few months. Whatever the reason this partnership does seem to have dissolved in this bailout.
4-Via the sovereign - A subtle but important point about this agreement is that the money is going through the Spanish government to a bank bailout fund rather than to the Spanish banks directly. On the one hand this may offer Spain flexibility to use funds to bailout their local governments who are in dire need of funding as well (we will have to see the terms to get a sense for how much freedom they have on fund usage). But bear in mind that this structure actually levers up the sovereign's balance sheet at a time when many have questioned the country's ability to service its debt load. Also worth considering is that the government is taking EU funds in debt form and using the money to buy bank equity. In other words the best the EU can hope for is their money back with interest where the Spanish government gets equity upside and embedded leverage from the EU. Most bail outs tend to be profitable operations. The government is a long term stakeholder with little concern for mark to market. In most cases the state gets in below market and at the best time (when everyone else is heading for the exits). So the Spanish government is set up to turn a profit on borrowed funds with the EU taking risk and not really getting compensated. My guess is that the EU chose to go this structure because they were not ready to integrate further and they figured that Spain's government is best positioned to administer and monitor the loans (after all Spain is still the only real regulator of the Spanish banks - another argument for setting up an EU-wide bank regulator). But I see this as a missed opportunity. The EU should have set up a fund and invested the money directly. It would have kept Spain's sovereign credit out of the equation and if Spain were to default the EU would be at less risk.
5- ESM vs EFSF - One point that is yet to be made clear is whether the funds are coming from EFSF or ESM. This is important because ESM funds supersede all other forms of debt where EFSF funding is pari-pasu with outstanding debt. Because this loan is being done at the Spanish sovereign level if the funds come from ESM all of the current outstanding Spanish government bond holders would be subordinated to the ESM. This could create further pain on government bond spreads.
And your bonus point
If the powers that be in Europe had the whole weekend to put this deal together how come the announcement came on a Saturday? One would have thought that a deal of this scale would have been carefully bargained and considered using as much time as possible. How was it done so quickly? I gues one answer is that the plan had clearly been in the works for a while. Plus Spain is getting a sweetheart deal (all the funding with no further spending commitments is a no brainer). But I wonder if the fact that the opening game for Spain's national team in the European Football Championship didn't play a part in the swiftness of the deal. My guess is that Rajoy and his staff (not to mention Monti and the Italians ) wanted the whole thing over and done with so that they could enjoy the match.
Weekend Reading - Spain bailout, China data dump and Krugman calls Ronald Reagan names
The big news over the weekend is that Spain will accept a 100bln EUR loan from the EU to prop up its failing banking system http://reut.rs/MuYwYs
What is interesting is that the EU and Spain went big on this package as the IMF reported that Spain’s banking system needs less than EUR40bn to recapitalize http://bloom.bg/Kb66rF
The NYT gives a bit more detail about the bailout terms and how the informal request was made http://nyti.ms/LbUC4I
Reuter’s Felix Salmon talks about why the Europeans didn’t directly bailout Spain’s banks but rather gave the funds to the Spanish government http://reut.rs/LHfvWR
In classic EU fashion the Fins have already raised the collateral issue with regard to the yet to be hashed out Spanish bank bailout loan http://bloom.bg/Lc4Cg6
Europe
Reuters reports that in addition to the Spanish bailout EU leadershipis working on a Eurozone bond plan http://reut.rs/O9A3Hu
Niall Ferguson and Nouriel Roubini argue that where German policy makers are worried that policy accommodation will lead to a repeat of Weimar Republic inflation levels they should be more concerned that failure to act will lead to a rise in political extremism ala Germany in 1932 http://on.ft.com/Kb4uxX
In a similar note the Telegraph call the Bundesbank the EU’s “secret dictator” and the “power behind merkel’s throne” http://bit.ly/LGdhHb
Meanwhile Der Spiegel argue that Spain and Greece have joined the French in using blackmail to receive German aid http://bit.ly/KsqtwZ
The Economist’s cover story blames Angela Merkel and the EU’s inability to get their crisis under control as the reason for the global economic slowdown http://econ.st/MoJkZq
Prior to Spain’s bailout request The Economist talks about Europe’s “slouch” toward a banking sector union http://econ.st/KqvTqv
The Telegraph’s James Quinn reminds us that even though the Spanish banking system seem to be close to a bailout the country’s real estate market is still a problem http://bit.ly/KWPPpM
The WSJ reports on a city in Greece where austerity has led to cuts in public services including garbage collection http://on.wsj.com/KTTl5u
The Economist talks about a managed Greek “divorce” from the EUR http://econ.st/Lc81vi
BBRG talks about the long term effects that high unemployment rates have had on the Spanish economy http://bloom.bg/LJjXSK
The Irish government is asking for the same terms that Spain got for its bailout http://f24.my/LQegTg
Der Spiegel points out the deteriorating position of German exports blaming the crisis http://bit.ly/LGdNVw
George Soros dubs Europe the accidental empire providing some interesting longer term perspective on the EMU/EZ etc http://bit.ly/O7zQo1
The Telegraph Liam Halligan warns that the UK and Europe could be driving their banks toward “zombie” behavior http://bit.ly/Mv84mn
US
The Economist provides a nice summary of the Scott Walker recall victory in Wisconsin earlier this week, this piece is a must read for those who haven’t kept up on the whole story and its wider implications http://econ.st/JUywRL
BBRG features an interview with House budget committee chair Paul Ryan http://bloom.bg/JUCN7I
The WSJ reports on California Gov Brown’s proposed tax increases to fix the state’s budget gap, noting that they have no alternative http://on.wsj.com/LJUSVU
Ex-Obama council of economic advisors chair Christina Romer calls on the Fed to engage in more accommodation to help support job growth (as well as keep her ex-boss employed) http://nyti.ms/LcbOc7
BBRG points out that US household net worth is back to 2004 levels (and that is an improvement) http://bloom.bg/LK1F1H
US energy production in Q1 was up 12% YoY and came in at a level not seen since the late 1990s http://on.wsj.com/KqwkkM
The NYT talks about how the weak job market is forcing many into early retirement and early use of social security funds http://nyti.ms/O7rgpe
Following Fitch’s comments about a potential US downgrade in 2013, S&P – the agency that actually already downgraded the US and has the credit on negative watch – said that they may act by 2014 http://bloom.bg/JUCN7I
Asia
As caviar exports from the Caspian sea are becoming more taxed and tariffed the US fishing industry is stepping in to replace supplies http://nyti.ms/KHVYrm
California is getting ready to ban foie-gras on ?July 1st and prices are soaring ahead of what the Telegraph calls Foie-mageddon http://bit.ly/LJjccr
Interesting piece on how weight watchers is tweaking their product to the French market http://nyti.ms/KTVWwf
The NYT Sunday opinion section features a piece on the biology of risk taking talking about what happens to the body as it oscillates between fear and greed http://nyti.ms/MwwCXR
In yesterday’s NYT Paul Krugman calls Ronal Reagan, for many a conservative Republican demagogue, a Keynesian http://nyti.ms/LP9S72
What is interesting is that the EU and Spain went big on this package as the IMF reported that Spain’s banking system needs less than EUR40bn to recapitalize http://bloom.bg/Kb66rF
The NYT gives a bit more detail about the bailout terms and how the informal request was made http://nyti.ms/LbUC4I
Reuter’s Felix Salmon talks about why the Europeans didn’t directly bailout Spain’s banks but rather gave the funds to the Spanish government http://reut.rs/LHfvWR
In classic EU fashion the Fins have already raised the collateral issue with regard to the yet to be hashed out Spanish bank bailout loan http://bloom.bg/Lc4Cg6
Europe
Reuters reports that in addition to the Spanish bailout EU leadershipis working on a Eurozone bond plan http://reut.rs/O9A3Hu
Niall Ferguson and Nouriel Roubini argue that where German policy makers are worried that policy accommodation will lead to a repeat of Weimar Republic inflation levels they should be more concerned that failure to act will lead to a rise in political extremism ala Germany in 1932 http://on.ft.com/Kb4uxX
In a similar note the Telegraph call the Bundesbank the EU’s “secret dictator” and the “power behind merkel’s throne” http://bit.ly/LGdhHb
Meanwhile Der Spiegel argue that Spain and Greece have joined the French in using blackmail to receive German aid http://bit.ly/KsqtwZ
The Economist’s cover story blames Angela Merkel and the EU’s inability to get their crisis under control as the reason for the global economic slowdown http://econ.st/MoJkZq
Prior to Spain’s bailout request The Economist talks about Europe’s “slouch” toward a banking sector union http://econ.st/KqvTqv
The Telegraph’s James Quinn reminds us that even though the Spanish banking system seem to be close to a bailout the country’s real estate market is still a problem http://bit.ly/KWPPpM
The WSJ reports on a city in Greece where austerity has led to cuts in public services including garbage collection http://on.wsj.com/KTTl5u
The Economist talks about a managed Greek “divorce” from the EUR http://econ.st/Lc81vi
BBRG talks about the long term effects that high unemployment rates have had on the Spanish economy http://bloom.bg/LJjXSK
The Irish government is asking for the same terms that Spain got for its bailout http://f24.my/LQegTg
Der Spiegel points out the deteriorating position of German exports blaming the crisis http://bit.ly/LGdNVw
George Soros dubs Europe the accidental empire providing some interesting longer term perspective on the EMU/EZ etc http://bit.ly/O7zQo1
The Telegraph Liam Halligan warns that the UK and Europe could be driving their banks toward “zombie” behavior http://bit.ly/Mv84mn
US
The Economist provides a nice summary of the Scott Walker recall victory in Wisconsin earlier this week, this piece is a must read for those who haven’t kept up on the whole story and its wider implications http://econ.st/JUywRL
BBRG features an interview with House budget committee chair Paul Ryan http://bloom.bg/JUCN7I
The WSJ reports on California Gov Brown’s proposed tax increases to fix the state’s budget gap, noting that they have no alternative http://on.wsj.com/LJUSVU
Ex-Obama council of economic advisors chair Christina Romer calls on the Fed to engage in more accommodation to help support job growth (as well as keep her ex-boss employed) http://nyti.ms/LcbOc7
BBRG points out that US household net worth is back to 2004 levels (and that is an improvement) http://bloom.bg/LK1F1H
US energy production in Q1 was up 12% YoY and came in at a level not seen since the late 1990s http://on.wsj.com/KqwkkM
The NYT talks about how the weak job market is forcing many into early retirement and early use of social security funds http://nyti.ms/O7rgpe
Following Fitch’s comments about a potential US downgrade in 2013, S&P – the agency that actually already downgraded the US and has the credit on negative watch – said that they may act by 2014 http://bloom.bg/JUCN7I
Asia
China’s May data came out over the weekend and as expected they were not pretty http://bloom.bg/NpPSfk but exports were not bad with US and Europe stronger than expected http://bloom.bg/MkFLGk also of note May car sales were decent http://bloom.bg/LbVjey
There were also some signs of life in the Chinese Real Estate development market in May http://on.wsj.com/MXEM25
The Economist remembers Tiananmen Square whose anniversary was just this past week http://econ.st/LGctSu
EM
With the European football championship being held in Poland and the Ukraine Der Spiegel interviews a number of young citizens of each country to talk about future prospects http://bit.ly/LJYXuZ but Businessweek talks about how hosting the games may not pay off economically for both countries as Europe faces economic troubles causing less sponsors and attendance http://buswk.co/Krjgvh
Russia is making Syrian negotiation efforts even more difficult by forcing the world to work with Iran as well http://on.ft.com/JUzZYv
The NYT talks about how indigenous people in Brazil are seeing an escalation of tribal violence http://nyti.ms/JUAhhS
Brazil’s central bank is signaling at least one more rate cut is immanent http://bloom.bg/MpZbXu
Corporate news/Other Asset classes
The WSJ reports that the US bank downgrades could happen as early as this week http://on.wsj.com/LP3o8m
Barrons features a mid-year discussion with a number of Wall St’s most respected investors and talking heads http://on.barrons.com/MwwJTp
The FT argues that markets have become hooked on monetary stimulus http://on.ft.com/MXzJif
BBRG reports that Sweden’s EQT group is considering the purchase of BSN Medical a German based medical supplies company for about 1.8bn EURs http://bloom.bg/Kb5MJk
Citi had originally protested when the Fed denied their plan to return shareholder capital a few months ago, it seems that they have now back down from their position and will no longer fight to return money to shareholders http://on.ft.com/LJS7nn
Ex-Bear Sterns executives settled a shareholder suite for $275mln http://on.ft.com/KWRFqs
Global beverage maker Diageo is apparently considering joining a long list of companies to have listed in Asia with a rumored Hong Kong offering http://bit.ly/KkilmZ
Tom Fanning, head of US energy Giant Southern Company on whether the US can really achieve energy independence from domestic natural gas and other alternatives http://on.wsj.com/KqwLLH
The Telegraph is reporting that the LME could be close to a final sale agreement with the US based ICE and Hong Kong’s Exchange and clearing the two finalists http://bit.ly/MoQbCf
Random
There were also some signs of life in the Chinese Real Estate development market in May http://on.wsj.com/MXEM25
The Economist remembers Tiananmen Square whose anniversary was just this past week http://econ.st/LGctSu
EM
With the European football championship being held in Poland and the Ukraine Der Spiegel interviews a number of young citizens of each country to talk about future prospects http://bit.ly/LJYXuZ but Businessweek talks about how hosting the games may not pay off economically for both countries as Europe faces economic troubles causing less sponsors and attendance http://buswk.co/Krjgvh
Russia is making Syrian negotiation efforts even more difficult by forcing the world to work with Iran as well http://on.ft.com/JUzZYv
The NYT talks about how indigenous people in Brazil are seeing an escalation of tribal violence http://nyti.ms/JUAhhS
Brazil’s central bank is signaling at least one more rate cut is immanent http://bloom.bg/MpZbXu
Corporate news/Other Asset classes
The WSJ reports that the US bank downgrades could happen as early as this week http://on.wsj.com/LP3o8m
Barrons features a mid-year discussion with a number of Wall St’s most respected investors and talking heads http://on.barrons.com/MwwJTp
The FT argues that markets have become hooked on monetary stimulus http://on.ft.com/MXzJif
BBRG reports that Sweden’s EQT group is considering the purchase of BSN Medical a German based medical supplies company for about 1.8bn EURs http://bloom.bg/Kb5MJk
Citi had originally protested when the Fed denied their plan to return shareholder capital a few months ago, it seems that they have now back down from their position and will no longer fight to return money to shareholders http://on.ft.com/LJS7nn
Ex-Bear Sterns executives settled a shareholder suite for $275mln http://on.ft.com/KWRFqs
Global beverage maker Diageo is apparently considering joining a long list of companies to have listed in Asia with a rumored Hong Kong offering http://bit.ly/KkilmZ
Tom Fanning, head of US energy Giant Southern Company on whether the US can really achieve energy independence from domestic natural gas and other alternatives http://on.wsj.com/KqwLLH
The Telegraph is reporting that the LME could be close to a final sale agreement with the US based ICE and Hong Kong’s Exchange and clearing the two finalists http://bit.ly/MoQbCf
Random
As caviar exports from the Caspian sea are becoming more taxed and tariffed the US fishing industry is stepping in to replace supplies http://nyti.ms/KHVYrm
California is getting ready to ban foie-gras on ?July 1st and prices are soaring ahead of what the Telegraph calls Foie-mageddon http://bit.ly/LJjccr
Interesting piece on how weight watchers is tweaking their product to the French market http://nyti.ms/KTVWwf
The NYT Sunday opinion section features a piece on the biology of risk taking talking about what happens to the body as it oscillates between fear and greed http://nyti.ms/MwwCXR
In yesterday’s NYT Paul Krugman calls Ronal Reagan, for many a conservative Republican demagogue, a Keynesian http://nyti.ms/LP9S72
Thursday, June 7, 2012
Points to Ponder - Talk is cheap, EU policy maker talk is cheaper
A few thoughts on all of the talk, some of the action and most of the markets....
-So the risk squeeze that we've all been waiting for has come this week. What do you need to see to have it move from a short term reflection of positioning and markets finding equilibrium after weeks of risk off to an actual rally?
-Of course the one policy maker with some credibility in Europe and the only organization that's not hamstrung by politics is the ECB. So shouldn't we be more disturbed about the fact Draghi told us he's going to be taking his lead from politicians?
-Then there is the US. Markets and the mainstream media have now fully figured out that the US is looking at a "fiscal cliff" at the end of 2012. Just as in Europe, the only hope the US has is that the federal government gets its act together with many pinning hopes on the lame duck session. While many thought that the Fed could come to the rescue as early as this month, it seems that they too have decided to stay put on monetary policy. But unlike Europe the Fed's mandate gives them a lot more flexibility and with inflation (even at the headline level) on the decline is the Fed's not moving prudent at this point? Particularly if you consider that employment looks ugly and the elections will probably keep the Fed from moving in the fall.
-With politicians and central banks not moving in either Europe or the US what's going to move the EUR$ once we're finished washing positions?
-One place where the market has seen concrete policy action is China. This morning, for the first time since Dec 2008, the PBoC cut lending and deposit rates 25bpam They also allowed for more "float" in the rates. Do they know something about this weekend's May data dump? You may wanna brace yourself for some ugly data!!!!
-On China, it is worth remembering that he Chinese banking market is nascent. This makes it a little difficult to gauge how effective a policy move can be (supply demand curves for money may not work in an undeveloped lending market and therefore changing the rates aka "price" might not matter). But action is action which is better than talk right? (interesting piece in the Australian about the politics of China's policy reaction function)
-Everyone's gotten very excited about Australia's employment and GDP data in recent days. But how excited can you be about a country with a pretty credible inflation targeting central bank who has just cut rates and whose economy is really being driven by demand from another country whose central bank just cut rates for the first time since 2008. While AUD is a high beta and is bouncing because of the what they're forgetting is that with both the RBA and China cutting rates is that in recent
-So the risk squeeze that we've all been waiting for has come this week. What do you need to see to have it move from a short term reflection of positioning and markets finding equilibrium after weeks of risk off to an actual rally?
-If your answer was "real" action from the Europeans - rather than talk you may want to start fading this bounce now. I say that because even though markets
have been buzzing on the feeling that Europe's politicians are on the verge of
action, let's just remember how European politicians work. Recent tempered Merkel comments should be a reminder of the fact that the European politicians have thus far over promised and under delivered almost every
step of the way. While its nice to hear talk of plans and fixes, I'd
humbly suggest that talk is cheap!!!!
-Of course the one policy maker with some credibility in Europe and the only organization that's not hamstrung by politics is the ECB. So shouldn't we be more disturbed about the fact Draghi told us he's going to be taking his lead from politicians?
-Then there is the US. Markets and the mainstream media have now fully figured out that the US is looking at a "fiscal cliff" at the end of 2012. Just as in Europe, the only hope the US has is that the federal government gets its act together with many pinning hopes on the lame duck session. While many thought that the Fed could come to the rescue as early as this month, it seems that they too have decided to stay put on monetary policy. But unlike Europe the Fed's mandate gives them a lot more flexibility and with inflation (even at the headline level) on the decline is the Fed's not moving prudent at this point? Particularly if you consider that employment looks ugly and the elections will probably keep the Fed from moving in the fall.
-With politicians and central banks not moving in either Europe or the US what's going to move the EUR$ once we're finished washing positions?
-One place where the market has seen concrete policy action is China. This morning, for the first time since Dec 2008, the PBoC cut lending and deposit rates 25bpam They also allowed for more "float" in the rates. Do they know something about this weekend's May data dump? You may wanna brace yourself for some ugly data!!!!
-On China, it is worth remembering that he Chinese banking market is nascent. This makes it a little difficult to gauge how effective a policy move can be (supply demand curves for money may not work in an undeveloped lending market and therefore changing the rates aka "price" might not matter). But action is action which is better than talk right? (interesting piece in the Australian about the politics of China's policy reaction function)
-Everyone's gotten very excited about Australia's employment and GDP data in recent days. But how excited can you be about a country with a pretty credible inflation targeting central bank who has just cut rates and whose economy is really being driven by demand from another country whose central bank just cut rates for the first time since 2008. While AUD is a high beta and is bouncing because of the what they're forgetting is that with both the RBA and China cutting rates is that in recent
-Hey tech analysis fans, do you want to see a text book example of a blow off top? Check out a weekly chart of the 10yr bond contract.
-You may have noticed the 3 ratings downgrade that Fitch bestowed on Spain this afternoon, but did you catch their comments about downgrading the US in 2013 if it doesn't get its act together?
and your bonus point to ponder.....
I know that I played "what's more likely" yesterday, but I ask you today if Fitch downgrades Spain's debt by 3 notches to BBB after S&P did a surprise 2 notch downgrade last month is it more likely that their ratings agency brethren downgrade the US banks by two or three notches when they finally finish their well advertised review later this month?
Wednesday, June 6, 2012
What's more likely ?
TMME apologizes to our loyal readership for the delay in this post. Yesterday was a busy one at TMME world headquarters and it lead to an unfortunate interruption in service. But we are happy to report that we are now back on line and submit the post below a day late but far from a dollar short.......
May was a wild ride and June has started out pretty raucous. All of this makes me wonder how far things will go. To better define some of those limits I've decided to play a game of what's more likely to happen. Feel free to answer or better yet post your own scenarios below.
-Is the ECB more likely to go LTRO2 this week or is the Fed more likely to go QE3 when they meet later in the month?
-Is the EU more likely to agree on a centralized fiscal scheme or a central bank bailout/gurantee scheme?
-Is the German 3yr more likely to go negative (joining the 2yr) or is the German 2yr more likely to trade back above 10bp (where it opened May)?
-Is the French 10yr more likely to break 2.00% or is the US 10yr more likely to get back above 2.00% (more or less where they started May)?
-Is the ECB more likely to go LTRO2 this week or is the Fed more likely to go QE3 when they meet later in the month?
-Is the EU more likely to agree on a centralized fiscal scheme or a central bank bailout/gurantee scheme?
-Is the German 3yr more likely to go negative (joining the 2yr) or is the German 2yr more likely to trade back above 10bp (where it opened May)?
-Is the French 10yr more likely to break 2.00% or is the US 10yr more likely to get back above 2.00% (more or less where they started May)?
-Is $CAD more likely to break back below 1.00 or is AUD$ more likely to break above 1.00?
-Is China more likely to cut RRR another 50bp or is Brazil's BCB more likely to cut their policy rate 50bp (I should point out their meeting is jul 2-close enough to happening in Jun I'd say)?
-Is EURCHF more likely to breach 1.20 (a firm line in the sand) or is $JPY more likely to trade through 78.00 (the kinda/sorta line in the sand)?
-Is Morgan Stanley's 5yr CDS more likely to break above 500bp (where it traded in Dec) or below 400bp (where it traded in Mar)?
-Is gold more likely to print +1900 again or is brent more likely to print below 89.00?
- Is Facebook more likely to close the month below $25 or is the Nasdaq more likely to close above 2500 (more or less where it was when the Facebook deal came public)?
And your bonus what's more likely to happen in June.......
-Is EURCHF more likely to breach 1.20 (a firm line in the sand) or is $JPY more likely to trade through 78.00 (the kinda/sorta line in the sand)?
-Is Morgan Stanley's 5yr CDS more likely to break above 500bp (where it traded in Dec) or below 400bp (where it traded in Mar)?
-Is gold more likely to print +1900 again or is brent more likely to print below 89.00?
- Is Facebook more likely to close the month below $25 or is the Nasdaq more likely to close above 2500 (more or less where it was when the Facebook deal came public)?
And your bonus what's more likely to happen in June.......
Is the ECB more likely to accept Spain's Rajoy beard as collateral at the window or the Fed Chair Ben Bernanke's???
Sunday, June 3, 2012
Weekend Reading - US NFP and EU crisis in the papers
The US employment report and the chaos that it caused in the markets on Friday took center stage in this weekend’s press......but European issues from more pressure on Spain to German Euro-bond refusal and even Cyprus's potential bailout all talked about in the weekend papers
The FT’s account of the employment data is pretty factual http://on.ft.com/JZvAt7
The NYT gives some nice graphics http://nyti.ms/JJFrBT The NYT also makes the point that with the US’s employment data the whole of the world economy looks weak and in need of a bailout http://nyti.ms/KBtkWM
You knew that someone had to raise QE3 in the face of Friday’s data but the WSJ is a bit skeptical about the prospects of more QE http://on.wsj.com/L5axAg
The WSJ also makes the point that this is the 3rd time in 3yrs that an employment market recovery has stalled and asks if the US economy is just not built to recover http://on.wsj.com/JDF1s7
Europe One of my favorite commentators Gavyn Davies asks if a federalized EU banking system will save the EUR http://on.ft.com/JL7Zeo
Bloomberg is reporting that Merkel has spent the weekend pressing Spain to accept a bank bailout http://bloom.bg/Kt4zNU
The FT previews next week’s Spanish government bond auction http://on.ft.com/LZ9Ag7 as well as Spain’s banks loosing 100bn of deposits in Q1 http://on.ft.com/KrJMKB
Spain’s PM Rajoy calls for the EU to centralize budget authority http://tgr.ph/LXIXUN
The Guardian reports that austerity and banking issues are forcing Spaniards to question why the country should stay in the EUR http://bit.ly/MnbXvB
BBRG makes the point that the ESM may not get German parliamentary approval until the first week of July yet it’s supposed to kick-in on July 9th http://bloom.bg/LaaqC7
Bloomberg reported that Merkel continued to talk down the prospects for Euro-bonds over the weekend http://bloom.bg/KHkhEb
Soros Gives Germany 3months to save the EUR http://reut.rs/LpiS2i
The UK Telegraph argues that Cyprus could become collateral damage even if Greece survives within the Euro http://tgr.ph/KmDY5Y a point confirmed on the FT's website this AM http://on.ft.com/LcdrFZ
The Charlemangne column in The Economist talks about letting the “EUR patient” go on the grounds of it being a mercy killing http://econ.st/N7N5ah
World Bank chief Zoelleck implored the EU to do more to deal with the looming crisis in the FT http://on.ft.com/KBEKKa meanwhile der Spiegel reports on Zolleck’s criticism http://bit.ly/KHhV85
Details of Greece’s far left Syrizia plans to void austerity commitments emerged yesterday with two weeks left in the 2nd Greek election and polls showing that the extreme left party remains a very close second to the more centrist New Democratic http://nyti.ms/KWyH1z
In a not so unrelated story Moodys downgraded Greece citing rising prospects of a EUR exit http://bloom.bg/KmRjuY
Interesting piece from BBRG talking about a prior currency devaluation battle in Greece http://bloom.bg/K6f8Rf
The Economist offers some insight into Europe’s banking system and the mess therein http://econ.st/JZzmTf
The FT’s account of the employment data is pretty factual http://on.ft.com/JZvAt7
The NYT gives some nice graphics http://nyti.ms/JJFrBT The NYT also makes the point that with the US’s employment data the whole of the world economy looks weak and in need of a bailout http://nyti.ms/KBtkWM
You knew that someone had to raise QE3 in the face of Friday’s data but the WSJ is a bit skeptical about the prospects of more QE http://on.wsj.com/L5axAg
The WSJ also makes the point that this is the 3rd time in 3yrs that an employment market recovery has stalled and asks if the US economy is just not built to recover http://on.wsj.com/JDF1s7
Europe One of my favorite commentators Gavyn Davies asks if a federalized EU banking system will save the EUR http://on.ft.com/JL7Zeo
Bloomberg is reporting that Merkel has spent the weekend pressing Spain to accept a bank bailout http://bloom.bg/Kt4zNU
The FT previews next week’s Spanish government bond auction http://on.ft.com/LZ9Ag7 as well as Spain’s banks loosing 100bn of deposits in Q1 http://on.ft.com/KrJMKB
Spain’s PM Rajoy calls for the EU to centralize budget authority http://tgr.ph/LXIXUN
The Guardian reports that austerity and banking issues are forcing Spaniards to question why the country should stay in the EUR http://bit.ly/MnbXvB
BBRG makes the point that the ESM may not get German parliamentary approval until the first week of July yet it’s supposed to kick-in on July 9th http://bloom.bg/LaaqC7
Bloomberg reported that Merkel continued to talk down the prospects for Euro-bonds over the weekend http://bloom.bg/KHkhEb
Soros Gives Germany 3months to save the EUR http://reut.rs/LpiS2i
The UK Telegraph argues that Cyprus could become collateral damage even if Greece survives within the Euro http://tgr.ph/KmDY5Y a point confirmed on the FT's website this AM http://on.ft.com/LcdrFZ
The Charlemangne column in The Economist talks about letting the “EUR patient” go on the grounds of it being a mercy killing http://econ.st/N7N5ah
World Bank chief Zoelleck implored the EU to do more to deal with the looming crisis in the FT http://on.ft.com/KBEKKa meanwhile der Spiegel reports on Zolleck’s criticism http://bit.ly/KHhV85
Details of Greece’s far left Syrizia plans to void austerity commitments emerged yesterday with two weeks left in the 2nd Greek election and polls showing that the extreme left party remains a very close second to the more centrist New Democratic http://nyti.ms/KWyH1z
In a not so unrelated story Moodys downgraded Greece citing rising prospects of a EUR exit http://bloom.bg/KmRjuY
Interesting piece from BBRG talking about a prior currency devaluation battle in Greece http://bloom.bg/K6f8Rf
The Economist offers some insight into Europe’s banking system and the mess therein http://econ.st/JZzmTf
The Telegraph reports that the Bank of England may consider more QE when they meet on Thursday http://tgr.ph/KXTlOQ
US
There is a cover story in Sunday’s NYT talking about how Obama and Romney have a lot of similar likes and attended the same schools http://nyti.ms/Lc9Is2
Also on the campaign The NYT talks about how the jobs data will shape the presidential elections http://nyti.ms/LcaVRL
BBRG talks about a speech where the president blamed Europe for weak employment figures at a fundraising dinner in his hometown of Chicago over the weekend speech at http://bloom.bg/JL69Ko interesting how the left leaning NYT points out Europe and even China’s problems as issues that the US economy is facing and are out of the President’s hands http://nyti.ms/N7NUjl
On the WSJ’s blog, while college graduates have a sub-5% unemployment rate 52% of people who have spent “sometime” in college are unemployed at the moment http://on.wsj.com/LkrBmE
In more bad news (albeit not entirely new) for college educated Americans this FT reports that rising student loan costs will encumber graduating students for years to come altering the economics of receiving a college education http://on.ft.com/Mndjql
In local government news the WSJ talks about pension cuts as a remedy to San Jose California’s budget issues http://on.wsj.com/KHcJBf Also in the WSJ, the story of Stockton California where officials are weighing bankruptcy http://on.wsj.com/JDHJxS
Meanwhile NYT talks about how cuts to California’s education budget are threatening the state’s well respected public university system http://nyti.ms/KWvKhE
But before you get too down on state budgetary issues This week’s Economist argues that America’s municipal governments are doing better at managing an economic turnaround than the federal government http://econ.st/KBuBNs
Robert Frank who is a regular NYT contributor and an econ prof at Cornell argues that the federal government could fix the economy with an emergency infrastructure spending program focused on building roads and bridges http://nyti.ms/KmJ0za
The Economist makes the argument that the US should be focusing more time on figuring out a way to develop and expand its Natural Gas resources http://econ.st/KrASge
Asia The Economist has an interesting article on Australia’s debate over Fracking http://econ.st/JJGIZQ
China’s non-manufacturing PMI was reported over the weekend and came out softer than last month but still way over the 50-boom/bust line http://bloom.bg/LaKn1B
Barrons talks about ways to benefit from China’s political handover and the stimulus that is likely to come http://on.barrons.com/KBAUkf
The WSJ reports that China’s housing market maybe showing signs of recovery http://on.wsj.com/KBBjDa
BBRG’s William Peseak talks about Hong Kong’s woes http://bloom.bg/K4tnrM
US
There is a cover story in Sunday’s NYT talking about how Obama and Romney have a lot of similar likes and attended the same schools http://nyti.ms/Lc9Is2
Also on the campaign The NYT talks about how the jobs data will shape the presidential elections http://nyti.ms/LcaVRL
BBRG talks about a speech where the president blamed Europe for weak employment figures at a fundraising dinner in his hometown of Chicago over the weekend speech at http://bloom.bg/JL69Ko interesting how the left leaning NYT points out Europe and even China’s problems as issues that the US economy is facing and are out of the President’s hands http://nyti.ms/N7NUjl
On the WSJ’s blog, while college graduates have a sub-5% unemployment rate 52% of people who have spent “sometime” in college are unemployed at the moment http://on.wsj.com/LkrBmE
In more bad news (albeit not entirely new) for college educated Americans this FT reports that rising student loan costs will encumber graduating students for years to come altering the economics of receiving a college education http://on.ft.com/Mndjql
In local government news the WSJ talks about pension cuts as a remedy to San Jose California’s budget issues http://on.wsj.com/KHcJBf Also in the WSJ, the story of Stockton California where officials are weighing bankruptcy http://on.wsj.com/JDHJxS
Meanwhile NYT talks about how cuts to California’s education budget are threatening the state’s well respected public university system http://nyti.ms/KWvKhE
But before you get too down on state budgetary issues This week’s Economist argues that America’s municipal governments are doing better at managing an economic turnaround than the federal government http://econ.st/KBuBNs
Robert Frank who is a regular NYT contributor and an econ prof at Cornell argues that the federal government could fix the economy with an emergency infrastructure spending program focused on building roads and bridges http://nyti.ms/KmJ0za
The Economist makes the argument that the US should be focusing more time on figuring out a way to develop and expand its Natural Gas resources http://econ.st/KrASge
Asia The Economist has an interesting article on Australia’s debate over Fracking http://econ.st/JJGIZQ
China’s non-manufacturing PMI was reported over the weekend and came out softer than last month but still way over the 50-boom/bust line http://bloom.bg/LaKn1B
Barrons talks about ways to benefit from China’s political handover and the stimulus that is likely to come http://on.barrons.com/KBAUkf
The WSJ reports that China’s housing market maybe showing signs of recovery http://on.wsj.com/KBBjDa
BBRG’s William Peseak talks about Hong Kong’s woes http://bloom.bg/K4tnrM
EM
The FT talks about weak Q1 GDP reported in Brazil on Friday http://on.ft.com/KrDH10
It would appear that Argentina’s black market for onshore USD is booming http://econ.st/N7MVzG
Iraqi energy production is starting to come back online http://nyti.ms/LcbcE6
Egypt’s former president Mubarak was sentenced to life in prison on Saturday http://on.ft.com/KWz7VR
BBRG talks about how soaring volumes on Mexico’s stock exchange the other day forced the bolsa to close http://bloom.bg/K4vagx
Corporate news/Other Asset classes The NYT talks about new rules and regulations being put in place in the booming business of money transfer in the US http://nyti.ms/KrDsCR
The SMH reports that Goldman is readying itself and its clients to acquire EU banking assets on the cheap http://bit.ly/LUGQle
Italy’s Insurance Giant Generali ousted its chief over the weekend http://bloom.bg/KBBVc0
AIG has assigned Argentine staff to Athens in a bid to use experience gained in prior Latin CY crisis to help prepare for the possibility of a Greek exit from the EUR http://bloom.bg/JZQFU9
The NYT’s Paul Lim argues that US stocks are the best choice of a number of bad choices http://nyti.ms/LpnyVI
US based Chesapeake Energy reports a large new find in Oklahoma http://bloom.bg/MlQ6Vxv
Bloomberg reports that Iraq and Iran (the world’s 2nd and 3rd largest oil producers respectively) plan to take a joint stance on production at the next OPEC meeting suggesting that production cuts could be coming given the Saudis stepping up production earlier in the year in response to higher prices http://bloom.bg/K1xOrO
A hostile bidding war has emerged for EFG-Hermes the middle east’s largest investment bank http://bloom.bg/KmTJJT
Formula One is delaying its IPO due to volatility in the markets http://on.wsj.com/KrL0pj
Random Holman Jenkins points out that a proposal to limit the portion sizes of soda in NYC by Mayor Bloomberg could only have come in a world where the government pays for healthcare noting that universal healthcare may in fact cause other limits of civil liberties down the road http://on.wsj.com/LkqHGA
You couldn’t make up a juicer political scandal than the one happening in Sunland Park New Mexico even if you tried but it may hold the answer to local government fiscal crisis around the country thttp://bloom.bg/M9nfAI
The NYT magazine goes through 32 inventions that will change your life http://nyti.ms/KWv0Js
A 1962 Ferrari GTO sold for $35mln to become the world’s most expensive car http://bloom.bg/JDPfbP
The FT talks about weak Q1 GDP reported in Brazil on Friday http://on.ft.com/KrDH10
It would appear that Argentina’s black market for onshore USD is booming http://econ.st/N7MVzG
Iraqi energy production is starting to come back online http://nyti.ms/LcbcE6
Egypt’s former president Mubarak was sentenced to life in prison on Saturday http://on.ft.com/KWz7VR
BBRG talks about how soaring volumes on Mexico’s stock exchange the other day forced the bolsa to close http://bloom.bg/K4vagx
Corporate news/Other Asset classes The NYT talks about new rules and regulations being put in place in the booming business of money transfer in the US http://nyti.ms/KrDsCR
The SMH reports that Goldman is readying itself and its clients to acquire EU banking assets on the cheap http://bit.ly/LUGQle
Italy’s Insurance Giant Generali ousted its chief over the weekend http://bloom.bg/KBBVc0
AIG has assigned Argentine staff to Athens in a bid to use experience gained in prior Latin CY crisis to help prepare for the possibility of a Greek exit from the EUR http://bloom.bg/JZQFU9
The NYT’s Paul Lim argues that US stocks are the best choice of a number of bad choices http://nyti.ms/LpnyVI
US based Chesapeake Energy reports a large new find in Oklahoma http://bloom.bg/MlQ6Vxv
Bloomberg reports that Iraq and Iran (the world’s 2nd and 3rd largest oil producers respectively) plan to take a joint stance on production at the next OPEC meeting suggesting that production cuts could be coming given the Saudis stepping up production earlier in the year in response to higher prices http://bloom.bg/K1xOrO
A hostile bidding war has emerged for EFG-Hermes the middle east’s largest investment bank http://bloom.bg/KmTJJT
Formula One is delaying its IPO due to volatility in the markets http://on.wsj.com/KrL0pj
Random Holman Jenkins points out that a proposal to limit the portion sizes of soda in NYC by Mayor Bloomberg could only have come in a world where the government pays for healthcare noting that universal healthcare may in fact cause other limits of civil liberties down the road http://on.wsj.com/LkqHGA
You couldn’t make up a juicer political scandal than the one happening in Sunland Park New Mexico even if you tried but it may hold the answer to local government fiscal crisis around the country thttp://bloom.bg/M9nfAI
The NYT magazine goes through 32 inventions that will change your life http://nyti.ms/KWv0Js
A 1962 Ferrari GTO sold for $35mln to become the world’s most expensive car http://bloom.bg/JDPfbP
Thursday, May 31, 2012
Points to Ponder - A Spexit before a Grexit???
It is a holiday shortened week but there's no shortage of pondering.
-Could a Spexit come before a Grexit? Where I don't think that the EU wants either Spain or Greece to leave, the situation in Greece has been poorly managed and Spain is becoming even less manageable. Without some form of debt monetization (which the ECB rejected earlier in the week) Spain and the EU's options for supporting the flailing banks are limited and at some point you've got to imagine that a the EU/ECB etc bends or a Spexit is put on the table.
-While this would be a catastrophe for the EMU and it would likely sink the EUR, from Spain's perspective an exit actually could have some appeal. Where the Greeks are worried about leaving the EU because they know that their economy can't make it on its own, Spain's economy actually has a lot of things going for it whether it stays or leaves the EU. Sure the Spanish look to Europe for growth and trade. But their economy is just as reliant on the rest of the Spanish-speaking economies of Latin America (and even the Hispanic market in the US). So why tie yourself to the failing EMU project when there are much bigger opportunities out there?
-I do believe that at the end of the day no one in the EU really wants to see things get to that level of discord. To avoid it we are going to have to see some combination of direct ESM support to the banks or some other form of EU-wide bank bail out initiative and it will likely come with ECB funding. The question is how far does the speculation on break up and of course chaotic market price action have to go to get the policy makers in Europe to do the right thing?
-Along those lines, a common theme that I hear is that positions are light, sentiment is poor and commitment levels are non-existant this may keep the risk from finding a bottom so long as no policy support comes to save the day. But this means that the moment that we see policy makers ride in on their white horses the snap back will be extreme.
-Does the Irish referendum outcome matter? Or is Ireland's situation such a small potato famine (sorry couldn't resist) that so long as they get a majority its meaningless
-Who is more likely to put capital controls in place Greece or Switzerland?
-What comes first in Switzerland, currency controls or negative interest rates? Do either actually steam the tide in CHF or is the safe haven status too much of an allure?
-A lot of people have been asking why Gold hasn't gone bid with the EU moving into full-on crisis mode. Perhaps the answer is that the shiny metal's main consumer, India, reported GDP on a 5 handle in Q1'12 vs a 9 handle in Q1'11.
-While India's poor economic performance has a lot to do with the external environment, some of the issues in 2012 have come from a government that lost control of its currency and inflation loosing a handle on business. This feels like a cautionary tale for the likes of Indonesia where the government is having an increasingly difficult time steaming the tide in its currency market.
-Oh and By the way in case you forgot, NFP comes out on tomorrow. While I actually think that this data will take a back seat to developments in Europe, to my mind the worst outcome is a 100-200k figure. A +200k print could be supportive of risk and the US equity markets in particular (picture it, the US as a safe haven in a fiscal crisis!!!). Where a sub 100k print gets markets back on the QE3 band wagon, which is supportive of risk as well. But an in between result is a ho-hum outcome and leaves us no where but back to thinking about the EU crisis.
And your bonus point to ponder
In case you missed it, the interview with Greece's Tsipras in Der Spiegel is worth a read. In a way this guy's position is almost comical although at this point there is nothing funny about forcing Greece toward a EUR exit http://bit.ly/L0LM8p
-Could a Spexit come before a Grexit? Where I don't think that the EU wants either Spain or Greece to leave, the situation in Greece has been poorly managed and Spain is becoming even less manageable. Without some form of debt monetization (which the ECB rejected earlier in the week) Spain and the EU's options for supporting the flailing banks are limited and at some point you've got to imagine that a the EU/ECB etc bends or a Spexit is put on the table.
-While this would be a catastrophe for the EMU and it would likely sink the EUR, from Spain's perspective an exit actually could have some appeal. Where the Greeks are worried about leaving the EU because they know that their economy can't make it on its own, Spain's economy actually has a lot of things going for it whether it stays or leaves the EU. Sure the Spanish look to Europe for growth and trade. But their economy is just as reliant on the rest of the Spanish-speaking economies of Latin America (and even the Hispanic market in the US). So why tie yourself to the failing EMU project when there are much bigger opportunities out there?
-I do believe that at the end of the day no one in the EU really wants to see things get to that level of discord. To avoid it we are going to have to see some combination of direct ESM support to the banks or some other form of EU-wide bank bail out initiative and it will likely come with ECB funding. The question is how far does the speculation on break up and of course chaotic market price action have to go to get the policy makers in Europe to do the right thing?
-Along those lines, a common theme that I hear is that positions are light, sentiment is poor and commitment levels are non-existant this may keep the risk from finding a bottom so long as no policy support comes to save the day. But this means that the moment that we see policy makers ride in on their white horses the snap back will be extreme.
-Does the Irish referendum outcome matter? Or is Ireland's situation such a small potato famine (sorry couldn't resist) that so long as they get a majority its meaningless
-Who is more likely to put capital controls in place Greece or Switzerland?
-What comes first in Switzerland, currency controls or negative interest rates? Do either actually steam the tide in CHF or is the safe haven status too much of an allure?
-A lot of people have been asking why Gold hasn't gone bid with the EU moving into full-on crisis mode. Perhaps the answer is that the shiny metal's main consumer, India, reported GDP on a 5 handle in Q1'12 vs a 9 handle in Q1'11.
-While India's poor economic performance has a lot to do with the external environment, some of the issues in 2012 have come from a government that lost control of its currency and inflation loosing a handle on business. This feels like a cautionary tale for the likes of Indonesia where the government is having an increasingly difficult time steaming the tide in its currency market.
-Oh and By the way in case you forgot, NFP comes out on tomorrow. While I actually think that this data will take a back seat to developments in Europe, to my mind the worst outcome is a 100-200k figure. A +200k print could be supportive of risk and the US equity markets in particular (picture it, the US as a safe haven in a fiscal crisis!!!). Where a sub 100k print gets markets back on the QE3 band wagon, which is supportive of risk as well. But an in between result is a ho-hum outcome and leaves us no where but back to thinking about the EU crisis.
And your bonus point to ponder
In case you missed it, the interview with Greece's Tsipras in Der Spiegel is worth a read. In a way this guy's position is almost comical although at this point there is nothing funny about forcing Greece toward a EUR exit http://bit.ly/L0LM8p
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